<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
---------------- --------------------------
Commission File Number 333-3774
--------
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
(Exact name of registrants as specified in their charters)
Delaware 43-1728405
-------- ----------
43-1740264
----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12444 Powerscourt Drive #400
St. Louis, Missouri 63131
---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (314) 965-0555
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
As of September 30, 1996, there was one share of common stock of Charter
Communications Southeast Holdings Capital Corporation outstanding, which was
owned by Charter Communications Southeast Holdings, L.P.
<PAGE> 2
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
---------------------
Item 1. Consolidated Financial Statements
a. Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3
b. Consolidated Statements of Operations - Three Months Ended
September 30, 1996 and 1995 4
c. Consolidated Statements of Operations - Nine Months Ended
September 30, 1996 and 1995 5
d. Consolidated Statement of Partners' Capital (Deficit) - Nine Months Ended
September 30, 1996 6
e. Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 7
and 1995
f. Notes to Consolidated Financial Statements 8
Separate financial statements of Charter Communications
Southeast Holdings Capital Corporation have not been
presented as this entity had no operations and
substantially no assets or equity.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II. Other Information
-----------------
Item 1. Legal Proceedings - None -
Item 2. Change in Securities - None -
Item 3. Defaults upon Senior Securities - None -
Item 4. Submission of Matters to a Vote of Security Holders - None -
Item 5. Other Information - None -
Item 6. Exhibits and Reports on Form 8-K - None -
Signature Page 17
</TABLE>
Page 2
<PAGE> 3
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,824,584 $ 6,547,438
Accounts receivable, net of allowance for
doubtful accounts of $ 278,819 and $288,128,
respectively 1,784,209 1,314,179
Prepaid expenses and other 2,188,119 454,175
Receivable from parent and affiliates 500,000 796,179
------------ ------------
Total current assets 6,296,912 9,111,971
------------ ------------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment 146,676,263 107,029,408
Franchise costs, net of accumulated
amortization of $ 62,364,700 and $40,899,887
respectively 377,806,023 303,827,917
------------ ------------
524,482,286 410,857,325
------------ ------------
OTHER ASSETS 14,193,838 5,592,429
------------ ------------
$544,973,036 $425,561,725
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Note payable - related party $ -- $ 15,000,000
Accounts payable and accrued expenses 12,525,786 12,330,848
Subscriber deposits and prepayments 152,334 243,277
Payable to affiliates 1,826,007 1,060,451
------------ ------------
14,504,127 28,634,576
------------ ------------
DEFERRED MANAGEMENT FEES PAYABLE TO AFFILIATE 3,625,833 1,898,004
------------ ------------
DEFERRED REVENUE 1,735,205 1,114,699
------------ ------------
LONG-TERM DEBT, less current maturities 462,454,565 259,125,000
------------ ------------
DEFERRED INCOME TAXES 5,000,128 5,111,308
------------ ------------
REDEEMABLE PREFERRED LIMITED UNITS - 0 and
393.5 Class A units and 0 and 100 Class B
units, issued and outstanding, respectively -- 53,107,175
------------ ------------
SPECIAL LIMITED PARTNER UNITS - 0 and
345.8526 Class A and 0 and 54.1163 Class B
units, issued and outstanding, respectively -- 44,972,506
------------ ------------
PARTNERS' CAPITAL:
General Partner 576,532 315,985
Preferred Limited Partners - 0 and 291.26
Class B units, issued and outstanding,
respectively -- --
Common Limited Partners - 1,513.36 and
477.19 units, issued and outstanding, respectively 57,076,646 31,282,472
------------ ------------
Total partners' Capital 57,653,178 31,598,457
------------ ------------
$544,973,036 $425,561,725
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
<PAGE> 4
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 23,127,456 $14,625,356
Premium service 3,846,817 2,739,434
Other 5,003,908 2,995,780
------------ -----------
31,978,181 20,360,570
------------ -----------
OPERATING EXPENSES:
Operating costs 13,366,796 8,771,014
General and administrative 2,439,015 1,624,903
Depreciation and amortization 14,077,817 10,674,309
Management fees - related party 1,600,171 1,022,932
------------ -----------
31,483,799 22,093,158
------------ -----------
Income (loss) from operations 494,382 (1,732,588)
------------ -----------
OTHER INCOME (EXPENSE):
Interest income 80,844 52,041
Interest expense (11,276,832) (4,338,297)
Loss from Hurricane Fran (412,000) --
Other (148,557) (774,877)
------------ -----------
(11,756,545) (5,061,133)
------------ -----------
Loss before benefit for income taxes and extraordinary item (11,262,163) (6,793,721)
BENEFIT (PROVISION) FOR INCOME TAXES -- 709,038
------------ -----------
Loss before extraordinary item (11,262,163) (6,084,683)
EXTRAORDINARY ITEM - Loss on early retirement of debt -- --
------------ -----------
Net loss (11,262,163) (6,084,683)
------------ -----------
REDEMPTION PREFERENCE ALLOCATION:
Special Limited Partner units -- (762,760)
Redeemable Preferred Limited units -- (1,820,639)
NET LOSS ALLOCATED TO REDEEMABLE PREFERRED LIMITED UNITS -- --
------------ -----------
Net loss applicable to partners' capital accounts $(11,262,163) $(8,668,082)
============ ===========
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (112,622) $ (33,040)
Class B Preferred Limited Partners -- (5,364,116)
Common Limited Partners (11,149,541) (3,270,926)
------------ -----------
$(11,262,163) $(8,668,082)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4
<PAGE> 5
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
SERVICE REVENUES:
Basic service $ 63,199,535 $ 37,341,398
Premium service 10,696,788 6,808,985
Other 13,000,242 6,994,004
------------ ------------
86,896,565 51,144,387
------------ ------------
OPERATING EXPENSES:
Operating costs 36,414,800 21,898,707
General and administrative 6,638,960 4,229,158
Depreciation and amortization 38,373,620 29,362,946
Management fees - related party 4,344,837 2,557,384
------------ ------------
85,772,217 58,048,195
------------ ------------
Income (loss) from operations 1,124,348 (6,903,808)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 169,353 115,596
Interest expense (29,393,072) (12,998,165)
Loss from Hurricane Fran (412,000) --
Other (381,823) (776,634)
------------ ------------
(30,017,542) (13,659,203)
------------ ------------
Loss before benefit for income taxes and extraordinary item (28,893,194) (20,563,011)
BENEFIT (PROVISION) FOR INCOME TAXES 111,180 1,181,730
------------ ------------
Loss before extraordinary item (28,782,014) (19,381,281)
EXTRAORDINARY ITEM - Loss on early retirement of debt -- (1,959,438)
------------ ------------
Net loss (28,782,014) (21,340,719)
------------ ------------
REDEMPTION PREFERENCE ALLOCATION:
Special Limited Partner units (828,616) (2,288,280)
Redeemable Preferred Limited units (1,452,343) (4,353,969)
NET LOSS ALLOCATED TO REDEEMABLE PREFERRED LIMITED UNITS 4,063,274 --
------------ ------------
Net loss applicable to partners' capital accounts $(26,999,699) $(27,982,968)
============ ============
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ (269,997) $ (114,144)
Class B Preferred Limited Partners -- (16,568,631)
Common Limited Partners (26,729,702) (11,300,193)
------------ ------------
$(26,999,699) $(27,982,968)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements
Page 5
<PAGE> 6
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Class B
Preferred
General Limited Common Limited
Partner Partners Partners Total
-------- --------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 $315,985 $ -- $ 31,282,472 $ 31,598,457
Return of capital on Special Limited
Partners' buyout 25,582 -- 2,532,591 2,558,173
Capital contributions 504,962 -- 49,991,285 50,496,247
Allocation of net loss (269,997) -- (26,729,702) (26,999,699)
-------- --------- ------------ ------------
BALANCE, June 30, 1996 $576,532 $ -- $ 57,076,646 $ 57,653,178
======== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
Page 6
<PAGE> 7
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(28,782,014) $(21,340,719)
Adjustments to reconcile net loss to net cash provided by operating activities
Extraordinary item - Loss on early retirement of debt -- 1,959,438
Depreciation and amortization 38,373,620 29,362,946
Amortization of debt issuance costs 411,923 --
Amortization of interest rate cap agreements 104,084 94,377
Forgiveness of note receivable with related party 100,000 --
Amortization on discount of debentures 5,554,504 --
Deferred income taxes (111,180) (1,181,730)
Changes in assets and liabilities, net of effects from acquisitions -
Accounts receivable, net 1,504,211 (41,693)
Prepaid expenses and other (1,636,139) (1,564,546)
Receivable from parent and affiliates 296,179 (485,279)
Accounts payable and accrued expenses (1,426,593) 2,565,039
Subscriber deposits and prepayments (90,943) 29,048
Payable to affiliates - deferred management fees 2,493,385 2,534,119
Deferred revenue 525,829 1,145,177
------------ ------------
Net cash provided by operating activities 17,316,866 13,076,177
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (26,714,284) (11,439,627)
Payments for acquisitions, net of cash acquired (125,270,673) (215,779,404)
Payments of organizational expenses (34,257) -
Restricted funds held in escrow - (20,833)
------------ ------------
Net cash used in investing activities (152,019,214) (227,239,864)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings $200,000,061 $ --
Payment of debt issuance costs (9,552,619) (3,972,203)
Borrowings under revolving credit agreement 16,275,000 142,800,000
Payments under revolving credit agreement (18,500,000) (1,000,000)
Payment of note payable (15,000,000) --
Partners' capital contributions -- 51,000,000
Preferred Limited Partners' Capital contributions -- 28,500,000
Redemption of Special Limited Partner units (43,242,948) -
------------ ------------
Net cash provided by financing activities 129,979,494 217,327,797
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,722,854) 3,164,110
CASH AND CASH EQUIVALENTS, beginning of period 6,547,438 1,484,263
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,824,584 $ 4,648,373
============ ============
CASH PAID FOR INTEREST $ 24,172,219 $ 11,559,204
============ ============
CASH PAID FOR TAXES $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 7
<PAGE> 8
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION:
Charter Communications Southeast Holdings, L.P. (Southeast Holdings), a
Delaware limited partnership, was formed in January 1995 for the purpose of
acquiring and operating existing cable television systems. Southeast Holdings'
stated termination date is December 31, 2014, as provided in the partnership
agreement.
In 1995, Southeast Holdings formed a new subsidiary, Charter Communication
Southeast L.P. (Southeast), and in connection with the initial capitalization
of Southeast, and a subsequent series of contribution transactions, Charter
Communications II, L.P. (CC-II) became an operating subsidiary.
On March 28, 1996 Southeast Holdings engaged in a corporate reorganization that
resulted in Charter Communications L.P. (CC-I) and its general partner, CCP
One, Inc. (CCP-I), becoming subsidiaries of Southeast Holdings. This
reorganization was facilitated because, in contemplation of the reorganization,
one of CCP-I's former shareholders acquired 100% of the CCP-I outstanding
shares and then contributed those shares so that CCP-I could become a Southeast
Holdings subsidiary. The contribution of the CCP-I shares was accounted for as
a reorganization under common control and accordingly, the consolidated
financial statements and notes have been restated to include the results and
financial position of CC-I for all periods presented.
The accompanying consolidated financial statements include the accounts of
Southeast Holdings and its direct and indirect wholly owned subsidiaries,
Charter Communications Southeast Properties, Inc., Charter Communications
Southeast Holdings Capital Corporation (Holdings Capital), Southeast, Charter
Communications Southeast Capital Corporation (Southeast Capital), CCP II, Inc.
(CCP II), CCP I,. CC-II, and CC-I, collectively referred to as the
"Partnership" or the "Company" herein. All significant intercompany balances
and transactions have been eliminated in consolidation.
The accompanying unaudited financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
CC-I commenced operations effective April 1994, through the acquisition of
certain cable television systems. CC-II commenced operations effective January
1995 through the acquisition of certain cable television systems.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of September 30, 1996 and 1995, are
unaudited; however, in the opinion of management, such statements include all
adjustments necessary for a fair presentation of the results for the periods
presented. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Registrant's Form S-4 dated as of July 26, 1996. Interim
results are not necessarily indicative of results for a full year.
3. LOSS FROM HURRICANE FRAN
In September 1996, Hurricane Fran caused damage to certain of the Partnership's
North Carolina systems. The claim is to be settled in 1997. The Partnership
recorded a $412,000 nonoperating loss for its portion of the insurance
deductible.
Page 8
<PAGE> 9
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Significant Transactions
Since April 1994, the Charter Communications Southeast, L.P. and its
subsidiaries (collectively the "Company" or the "Partnership") have completed
the following acquisitions:
<TABLE>
<CAPTION>
Approximate
--------------
Acquisition Date Purchase Price Location of Systems Seller
---------------- -------------- ------------------- ------
<S> <C> <C> <C>
April 1994 $174.7 million Georgia, Alabama, Louisiana McDonald Group
January 1995 $108.0 million Kentucky, N. Carolina, S. Carolina Crown Media
May 1995 $ 22.0 million Georgia Peachtree
May 1995 $ 48.0 million Alabama CableSouth
July 1995 $ 34.7 million Georgia Masada Cable Partners, L.P.
November 1995 $ 35.0 million S. Carolina Masada Cable Partners II, L.P.
January 1996 $ 8.4 million S. Carolina Genesis
March 1996 $112.0 million Georgia, N. Carolina, Tenn., Ky. Cencom Cable Income Partners, L.P.
</TABLE>
As of September 30, 1996, the Company had six pending acquisitions for the
purchase of cable television systems serving approximately 101,000 basic
subscribers for a total purchase price of approximately $179.2 million.
Completion of these acquisitions is dependent upon arrangement of financing on
satisfactory terms to the Partnership, and there can be no assurance that such
financing will be satisfactory to the Partnership, if available at all.
Results of Operations
The following table sets forth the approximate number of basic subscribers and
premium subscriptions of the Partnership as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Basic Subscribers:
Nashville Cluster 41,951 -- --
Northern Alabama Cluster 48,451 47,757 47,510
New Orleans Cluster 35,869 35,461 35,988
Atlanta Cluster 61,539 57,722 57,752
Greenville/Spartanburg Cluster 77,286 71,083 49,436
Non-Cluster Systems 49,892 37,083 36,867
------- ------- -------
314,988 249,106 227,553
======= ======= =======
Premium Subscription Units:
Nashville Cluster 22,798 -- --
Northern Alabama Cluster 22,544 50,437 50,382
New Orleans Cluster 17,304 19,084 19,669
Atlanta Cluster 22,799 22,388 21,755
Greenville/Spartanburg Cluster 29,074 26,399 21,285
Non-Cluster Systems 30,505 23,851 24,061
------- ------- -------
145,024 142,159 137,152
======= ======= =======
</TABLE>
Page 9
<PAGE> 10
The following table sets forth certain items as a percentage of total service
revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------- -----------------
(Unaudited) (Unaudited)
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Service Revenues 100% 100% 100% 100%
----- ----- ----- -----
Operating Expenses:
Operating, General and Administrative 49.4 51.1 49.5 51.1
Depreciation and Amortization 44.0 52.4 44.2 57.4
Management Fees - Related Party 5.0 5.0 5.0 5.0
----- ----- ----- -----
98.4 108.5 98.7 113.5
----- ----- ----- -----
Income (loss) From Operations 1.6 (8.5) 1.3 (13.5)
----- ----- ----- -----
Other Income (Expense):
Interest Income 0.3 0.3 0.2 0.2
Interest Expense (35.3) (21.3) (33.8) (25.4)
Other (1.8) (3.8) (0.9) (1.5)
----- ----- ----- -----
(36.8) (24.8) (34.5) (26.7)
----- ----- ----- -----
Net Loss before income taxes and extraordinary
item (35.2) (33.3) (33.2) (40.2)
===== ===== ===== =====
</TABLE>
Service Revenues
The Partnership earns substantially all of its revenues from monthly
subscription fees for basic tier, expanded tier, premium channels, equipment
rental and ancillary services provided by its cable television systems.
Service revenues increased by 57.1% to $31,978,181 and 69.9% to $86,896,565,
respectively, for the three and nine month periods ended September 30, 1996,
when compared to the similar periods of 1995. These increases in 1996 are
primarily due to an increase in subscribers for the basic tier of cable service
offered by the systems resulting primarily from acquisitions of cable systems
by the Partnership throughout 1995 and 1996. In addition, the Partnership
implemented basic and expanded tier retail rate increases in certain systems,
in accordance with federal law.
Basic subscribers at September 30, 1996 increased by 38.4% over September 30,
1995. In addition to the acquisitions, this increase reflects management's
marketing efforts to add new customers and retain existing customers, as well
as improved customer service. In addition, a limited amount of new-build
construction increased the coverage of the systems.
Premium service subscriptions increased 5.7% from September 30, 1995 to
September 30, 1996. The ratio of premium service subscriptions per basic
subscriber decreased from 60.3% at September 30, 1995 to 46.0% at September 30,
1996. The overall increase in the number of premium subscriptions is the
result of the overall increase in basic subscribers base due to acquisitions,
but the decrease in the premium ratio is primarily due to the elimination of
approximately 24,000 Flix and American Movie Classics premium units in the
Northern Alabama Cluster. In addition, the decrease in the premium ratio may
also reflect the fact that there is an increasing variety of quality
programming on the basic tier. As such, the Partnership anticipates that
premium services may continue to decline relative to basic services over the
next few years. As a result, the Partnership offers premium services to
subscribers in a packaged format, providing subscribers with a discount from
the combined retail rates of these packaged services in an effort to maintain
premium subscription levels and attract additional subscriptions.
Page 10
<PAGE> 11
Operating Expenses
Operating, general and administrative expenses increased by $5,409,894 or
52.0% and $16,925,895 or 64.8%, respectively, for the three and nine month
periods ended September 30, 1996 when compared to the similar periods of 1995.
The majority of these increases were related to the acquisitions of additional
cable systems during 1995 and 1996.
Depreciation and amortization increased by 31.9% from $10,674,309 to
$14,077,817 and 30.7% from $29,362,946 to $38,373,620, respectively, for the
three and nine months ended September 30, 1996, when compared to the similar
periods of 1995. The increase in depreciation and amortization is a result of
capital expenditures made to the Systems, in addition to the increase in
property, plant and equipment and franchise costs resulting from the
acquisitions of additional cable systems.
Other Income / Expense
Interest expense increased by 159.9% from $4,338,297 to $11,276,832 and 126.1%
from $12,998,165 to $29,393,072, respectively, for the three and nine month
periods ended September 30, 1996, when compared to the similar periods of 1995.
This increase was primarily due to the increase in the average outstanding debt
balance between the comparable periods and an increase in the interest expense
associated with issuing the Senior Notes and Discount Debentures on March 28,
1996. Hurricane Fran resulted in expense of $412,000 in September, 1996.
Net Loss
Net loss increased by 85.1% from $(6,084,683) to $(11,262,163) and 34.9% from
$(21,340,719) to $(28,782,014) respectively, for the three and nine month
periods ended September 30, 1996 when compared to the similar periods of 1995.
In 1996, increased amortization, interest expense, and Hurricane Fran were
significant factors versus the prior year.
Page 11
<PAGE> 12
Liquidity and Capital Resources
The Partnership's growth by acquisition in 1995 and 1996 has been funded
primarily by borrowings under credit facilities with the exception of the
acquisition in 1996 that was funded with the proceeds of the Senior Secured
Discount Debentures and the Senior Notes. Cash flows provided by operating
activities together with third party borrowings have been sufficient to fund
the Partnership's debt service, capital expenditures and working capital
requirements. In addition, the Partnership has funded portions of certain
acquisitions through the issuance of equity securities. Future cash flows
provided by operating activities and availability for borrowings under the
existing credit facilities are anticipated to be sufficient, during the next 12
months, for the Partnership's ongoing debt service, capital expenditures and
working capital needs. The Partnership anticipates that future acquisitions
could be financed through borrowings, either presently available under the
existing credit facilities, or as a result of amending the existing credit
facilities to allow for expanded borrowing capacity, combined with additional
equity contributions. Although to date the Partnership has been able to obtain
financing on satisfactory terms, there can be no assurance that this will
continue to be the case in the future and, thereby, could negatively impact the
Partnership's ability to pursue a strategy that includes growth through
acquisitions.
On March 28, 1996, the Partnership engaged in a corporate restructuring and
refinancing plan. As a result, Southeast Holdings and Holdings Capital issued
$146.8 million principal amount of Senior Secured Discount Debentures due 2007,
from which the net proceeds of $72.4 million were invested in its subsidiary,
Southeast, for use in operations. Simultaneously with this offering by
Southeast Holdings, Southeast and Southeast Capital issued $125.0 million
aggregate principal amount of Senior Notes due 2006, from which the proceeds to
the issuers were $121.3 million. The net proceeds of these offerings were
ultimately used, amongst other things, as follows: $17.5 million to repay
outstanding credit facilities, $16.1 million to repay other indebtedness, $43.2
million to redeem the Special Limited Partner units of CC-I, and $114.9 million
to consummate an acquisition.
At September 30, 1996, the Partnership's long-term debt of $462.5 million
consisted of $80.6 million outstanding under the revolving credit and term loan
facility of CC-I, $176.3 million outstanding under the revolving credit and
term loan facility of CC-II, $125 million of indebtedness from the sale of 11
1/4% Senior Notes by Southeast, and $80.6 million of indebtedness from the sale
of 14% Senior Discount Debentures. The Partnership had unused and available
borrowing capacity of $24.4 million and $28.7 million under the credit
facilities of CC-I and CC-II, respectively, at September 30, 1996.
Cash interest is payable on a monthly and quarterly basis for borrowings
outstanding under the CC-I and CC-II credit facilities. Cash interest is
payable semi-annually, in March and September, on the Senior Notes until March
2006. The discount related to the original sale of the Senior Secured Discount
Debentures is amortized through March 2001; thereafter, cash interest is
payable on a semi-annual basis in March and September until March 2007. The
first interest payment on the Senior Notes was paid in September 1996.
The Partnership manages risk arising from fluctuations in interest rates
through the use of interest rate swap and cap agreements required under the
terms of the existing credit facilities. Interest rate swap and cap agreements
are accounted for by the Partnership as a hedge of the debt obligation. As a
result, the net settlement amount of any such swap or cap is recorded as an
adjustment to interest expense in the period incurred. The affects of the
Partnership's hedging practices on its weighted average borrowing rate and on
reported interest expense were not material for either the three or nine months
ended September 30, 1996.
During the second quarter of 1996, subsidiaries of the Partnership entered into
separate agreements for the purchase of cable system assets from Masada Cable
Partners, L.P. and Prime Cable of Hickory, L.P., for approximately $22.0
million and $68.0 million, respectively. Subject to the satisfaction of
certain terms and conditions, it is anticipated that these acquisitions will be
consummated in late 1996 or early 1997. In addition, the Partnership's
subsidiaries entered into four separate agreements to purchase cable system
assets in Anderson County and Abbeville, South Carolina and Lincolnton and
Sanford, North Carolina for approximately $36.7 million, $4.2 million, $27.5
million and $20.8 million, respectively. The entities selling these four
systems are affiliated with Charter Communications, Inc., the management
company for, and a beneficial owner of an interest in, the Partnership. The
selling entities intend to seek prior approval of the holders of a majority of
their outstanding equity interests, and subject to other customary terms and
conditions, such purchases are expected to be consummated in 1997. The
Partnership anticipates funding these acquisitions by increasing the limits on
its credit facilities and borrowing necessary funds.
Page 12
<PAGE> 13
In addition, the Partnership will explore possibilities for additional equity
contributions. Completion of the aforementioned acquisitions is dependent upon
arrangement of financing on satisfactory terms to the Partnership, and there
can be no assurance that such financing will be satisfactory to the
Partnership, if available at all.
The Partnership incurred capital expenditures of approximately $26.7 million
during the first nine months of 1996 in connection with the improvement and
upgrading of the Partnership's cable systems. The Partnership anticipates that
capital expenditures for such purposes will be approximately $50.0 million
during 1996 and $30.0 million during 1997, of which approximately $11.0 million
per year represents anticipated maintenance capital expenditures.
During October 1996, the Partnership became aware that the local power
commission affiliated with the City of Newnan, Georgia, announced its intention
to construct a fiber optic system for the delivery of video and data services
to the entire city. The power commission's construction would be completed
during 1997 and would pass approximately 6,000 homes, from which there are
currently approximately 3,600 homes that subscribe to cable television services
offered by the Partnership. The Partnership anticipates completion of the
upgrade of its existing cable plant to two-way 750 Mhz by December 1996, which
will be followed by an aggressive marketing effort during the first quarter of
1997 to promote its new channel offerings and other services. The Partnership
cannot determine the impact, if any, that this proposed project by the City of
Newnan will have on long-term results or strategies of the Partnership.
The Partnership has insurance covering risks incurred in the ordinary course of
business, including general liability, property and business interruption
coverage. As is typical in the cable television industry, the Partnership does
not maintain insurance covering its underground plant, the cost of which
management believes is currently prohibitive. Management believes that the
Partnership's insurance coverage is adequate, and intends to monitor the
insurance markets to attempt to obtain coverage for the Partnership's
underground plants at reasonable and cost-effective rates.
The Partnership believes that it has generally complied with the provisions of
the 1992 Act regarding cable programming service rates. However, some systems
may be charging rates which are in excess of allowable rates and, accordingly,
may be subject to challenge by regulatory authorities, such challenge may
result in the Partnership being required to make refunds to subscribers. The
amount of refunds, if any, which could be payable by the Partnership in the
event such systems' rates are successfully challenged by regulatory authorities
is not currently estimable. The Partnership has not reserved any amounts for
payment of such refunds as the General Partner does not believe that the
amounts of any such refunds would have a material adverse effect on the
financial position or results of the Partnership.
Page 13
<PAGE> 14
Supplemental Analysis of Quarterly Operating Results
The following table sets forth certain operating results and statistics for the
three months ended September 30, 1996 compared to the three months ended
September 30, 1995. The following dollar amounts are in thousands, except for
per subscriber amounts:
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended September 30, 1995 Ended September 30, 1996
------------------------ ------------------------------------------
(Unaudited) (Unaudited)
SYSTEMS Systems
ACQUIRED Acquired
Actual PRO FORMA BEFORE 9-30-95 After 9-30-95 Actual
------ --------- -------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Service Revenues $ 20,361 $ 20,883 $ 23,164 $ 8,814 $ 31,978
-------- -------- -------- -------- --------
Operating Expenses:
Operating costs 8,771 8,977 9,873 3,494 13,367
General and administrative 1,625 1,679 1,719 704 2,423
-------- -------- -------- -------- --------
10,396 10,656 11,592 4,198 15,790
-------- -------- -------- -------- --------
EBITDA (a) $ 9,965 $ 10,227 $ 11,572 $ 4,616 $ 16,188
======== ======== ======== ======== ========
EBITDA Margin 48.9% 49.0% 50.0% 52.4% 50.6%
======== ======== ======== ======== ========
Operating Statistical Data, at end
of period:
Revenue per sub N/A $ 30.59 $ 32.84 $ 36.78 $ 33.84
Homes passed 338,507 338,507 345,727 121,895 467,622
Basic subscribers 227,553 227,553 235,107 79,881 314,988
Basic penetration 67.2 67.2% 68.0% 65.5% 67.4%
Premium subscriptions 137,152 137,152 108,249 36,775 145,024
</TABLE>
(a) EBITDA represents income beore interest expense, income taxes,
depreciation and amortization, management fees and other income (expense).
EBITDA is calculated before payment of management fees so as to be consistent
with certain financial terms contained in the revolving credit and term loan
facilities. Management believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. EBITDA is not presented in accordance
with generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, operating income or operating cash
flows as an indicator of the Partnership's operating performance. EBITDA does
not include the Partnership's debt obligations or other significant
commitments.
Page 14
<PAGE> 15
Results of Operations - Pro Forma for the Quarter Ended September 30, 1995
Versus the Quarter Ended September 30, 1996 (Systems Acquired Before
September 30, 1995)
The following discussion is provided to show the results of operations on a
comparable basis for those systems owned by the Partnership during the three
months ended September 30, 1996 versus the three months ended September 30,
1995. Specifically, the comparable analysis includes the results of operations
for the five acquisitions completed between April 1994 and July 1995 - see
Significant Transactions for a complete listing of all acquisitions by the
Company. Certain pro forma adjustments were made to the 1995 quarterly results
to reflect operating results as if the acquisition of the Georgia system
acquired from Masada Cable Partners, L.P. had occurred on July 1, 1995 rather
than the actual acquisition date of July 31, 1995.
Service revenues increased by $2,281,000 or 10.9% when comparing the pro forma
revenues for the quarter ended September 30, 1995 to the results for the
comparable systems for the quarter ended September 30, 1996. This increase is
due to a net gain of approximately 7,500 basic subscribers between quarters
and, second, to retail rate increases implemented in certain of the
Partnership's systems.
Operating expenses increased approximately $936,000 or 8.8% when comparing the
pro forma operating expenses for the quarter ended September 30, 1995 to the
results for the comparable systems for the quarter ended September 30, 1996.
This increase is primarily due to increases in license fees paid for
programming as a result of additional subscribers, new channels launched and
increases in the rates paid to the programming services. The growth in
programming expense is consistent with industry-wide increases.
The Partnership experienced growth in operating cash flow (EBITDA) of
approximately $1,345,000 or 13.2% when comparing the pro forma operating cash
flow for the quarter ended September 30, 1995 to the results for the comparable
systems for the quarter ended September 30, 1996. In addition, EBITBA margin
increased from 49.0% to 50.0% when comparing the similar periods.
Page 15
<PAGE> 16
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Change in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
Page 16
<PAGE> 17
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR QUARTER ENDED SEPTEMBER 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
By: Charter Communications Holdings
Properties, Inc..
General Partner
By: /s/ Jerald L. Kent
-----------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Jerald L. Kent November 13, 1996
-------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Ralph G. Kelly November 13, 1996
-------------------------
Ralph G. Kelly
Senior Vice President and
Treasurer
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS
CAPITAL CORPORATION
By: /s/ Jerald L. Kent
-----------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Jerald L. Kent November 13, 1996
-------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: /s/Ralph G. Kelly November 13, 1996
-------------------------
Ralph G. Kelly
Senior Vice President and
Treasurer
Page 17
<PAGE> 18
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS CAPITAL CORPORATION
FOR QUARTER ENDED SEPTEMBER 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS, L.P.
By: Charter Communications Holdings Properties, Inc..
General Partner
By:
-------------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: November 13, 1996
-------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: November 13, 1996
-------------------------
Ralph G. Kelly
Senior Vice President and
Treasurer
CHARTER COMMUNICATIONS SOUTHEAST HOLDINGS
CAPITAL CORPORATION
By:
----------------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: November 13, 1996
-------------------------
Jerald L. Kent
President and
Chief Financial Officer
By: November 13, 1996
-------------------------
Ralph G. Kelly
Senior Vice President and
Treasurer
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,824,584
<SECURITIES> 0
<RECEIVABLES> 2,063,028
<ALLOWANCES> (278,819)
<INVENTORY> 0
<CURRENT-ASSETS> 6,296,912
<PP&E> 146,676,263
<DEPRECIATION> 0
<TOTAL-ASSETS> 544,973,036
<CURRENT-LIABILITIES> 14,504,127
<BONDS> 462,454,565
0
0
<COMMON> 0
<OTHER-SE> 57,653,178
<TOTAL-LIABILITY-AND-EQUITY> 544,973,036
<SALES> 31,978,181
<TOTAL-REVENUES> 31,978,181
<CGS> 0
<TOTAL-COSTS> 31,483,799
<OTHER-EXPENSES> 560,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,195,988
<INCOME-PRETAX> (11,262,163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,262,163)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,262,163)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
